Taxpayers are likely to pick up the tab if BT’s gold-plated pension scheme goes bust after a judge threw out a government call to be let off the hook.
BT runs Britain’s biggest defined benefit pension scheme that guarantees pension payments for more than 310,000 members.
The government is worried that if BT goes under, taxpayers would have to cover the huge cost of paying the retirement benefits.
The Court of Appeal in London rejected a move by the government claiming the state was only responsible for pension costs up to 1984, when BT was privatised.
The ruling upheld an earlier ruling in the High Court, where judges came to the same conclusion.
In effect, the ruling is hypothetical, because BT is a thriving business that shows no signs of going to the wall. The case was brought by the government in a bid to protect taxpayer interests in the future should the firm hit hard times.
Crown guarantee
The crux of the government argument was a crown guarantee to underwrite the costs of BT’s pension scheme only covered members who were paying into or receiving payments from the fund at privatisation.
New members, they argued, were exempt from the guarantee.
The court disagreed and ruled the guarantee extended to all members.
However, the Court of Appeal upheld a second part of the application that limits the government liability to a similar amount BT would owe the scheme if the firm goes into administration. The application was aimed at limiting the reasons BT could increase the pension fund deficit.
The BT pension scheme is £47 billion in the black, but has assets of £40 billion.
The ruling is negative for the government but underlines the fragility of the state of pension funding in Britain’s FTSE100 companies.
Legal challenge
At least 15 of the companies have pensions underfunded by at least £10 billion, and in some cases, the deficits exceed the market capitalisation of the firms.
“BT and the government will have to study the judgment in detail to work out what this means to the fund and pension members,” said a BT spokesman.
The government suggests the likely cost of the BT pension fund could reach £8 billion.
A further legal challenge in the Supreme Court is open to the government, but no indication has been forthcoming about another appeal.
A defined benefit pension scheme pays members a guaranteed retirement income based on their final salary.
